Student debt advice for college graduates and parents

It’s critical to stay current on loan payments to avoid fines

Based on third-quarter numbers, economists at the New York Fed said 11.6 percent of the $1.2 trillion in outstanding federal and private student loan debt is at least three months past due, higher than the percentage of late payments on all other forms of consumer credit — mortgages, credit cards and car loans.

Photo: Associated Press file photo

Some college students call home when they need extra cash. The same might happen after graduation, when student loans start coming due.

Graduates — many of whom start repayment this time of year, following a six-month grace period after spring graduation — face big bills.

A recently released study examined the debt loads of 2013 graduates. Sixty-nine percent of college seniors who graduated from public or private nonprofit colleges that year had student loans, according to the Institute for College Access & Success and the Project on Student Debt. The average debt was $28,400, up 2 percent from the year before.

To help manage the balance, some parents are pitching in, but not always with financial help.

According to the student loan division of Discover Financial Services, the credit card issuer, 52 percent of parents said they are likely to help their child repay student loans in 2014, down from 58 percent the previous year.

“Instead of parents just paying the student loan debt, they’re teaching their child how to manage it. They’re telling the student to call their lenders or consolidate their loans,” said Jodi Okun, who collaborates with Discover Student Loans and is the founder of College Financial Aid Advisors, which provides financial aid counseling for families.

If parents do offer financial support, it can come in many forms, from repaying loans to allowing graduates to move back home.

Whatever the arrangement, experts offered these tips for parents and graduates.

First, figure out what is owed and whether there are ways to make a student’s monthly payment more manageable.

With federal loans, you generally have several repayment options. Students, for example, can opt for a graduated plan in which payments begin low and increase every two years. Some graduates may also be eligible for an income-driven plan, which limits your monthly payment to a percentage of your discretionary income.

Repayment options for private education loans are more limited.

“The most important thing is to stay current on those bills,” said Fred Amrein, author of “Financial Aid and Beyond: Secrets to College Affordability.” “If parents need to help, do it on the private side first.”

Parents should determine how much financial support they can give.

“Mom and Dad can’t lose track of their goals, such as retirement,” said Diane Pearson, a wealth adviser at Legend Financial Advisors in Pittsburgh. “If they don’t see a way of doing both they have to say no, as hard as that may be.”

If parents can afford to help, outline a plan.

Some parents may agree to cover student loan bills, but only for as long as a graduate is without a full-time job. Or parents might opt to help with other expenses, such as rent, food and cellphone bills.

Keep in mind tax consequences. Parents may have to file a gift tax return if Mom and Dad individually cover loan payments that exceed $14,000 in a calendar year, the annual gift tax exclusion for 2014 and 2015 (unless you plan to pay your parents back).

Agree how long the support will last and what’s expected, including when and how you might reimburse your folks. Parents also may not be pleased if a graduate spends more time with friends than looking for a job.

“Whatever your criteria is going to be, make sure both sides hold up their end of the bargain,” Okun said. “And as you go along, re-evaluate the plan.”